SRI P ABUBAKAR,HOSPET vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 , BELLARY

1. On the facts and in the circumstances of the case, the ld.CIT(Appeals) erred in upholding the impugned addition of Rs.45,14,322/- in respect of alleged prior period expenses.

The facts of the case are that the assessee is a PWD contractor and a mine owner carrying on the business of iron ore by obtaining lease granted by Ministry of Environment and Forest, New Delhi and Mines and Geology Department of Karnataka. The assessee filed his return of income for A.Y. 2007-08 by declaring total income of Rs.2,87,68,920/-. The return was revised on 17/02/2009 by declaring total income of Rs.186,65,990/-. The case was selected for scrutiny and vide order dated 24/12/2009 passed u/s. 143(3) of the I.T. Act, the income was assessed at Rs.2,05,13,490/-. Subsequently, the above order was set aside by the CIT, Kalaburgi vide order dated 28.03.2012 passed u/s. 263 of the I.T. Act with a direction to call for the details of prior period expenses amounting to Rs.45,14,322/- and village development expenses of Rs.16,40,706/-. After examining these issues, the Assessing Officer passed fresh order dated 05.03.2013 whereby he accepted the prior period expenses and village development expenses. However, the CIT, Kalaburgi concluded that the order passed by the Assessing Officer giving effect to the CIT’s order u/s. 263 is erroneous and prejudicial to the interests of revenue and vide order dated 05.02.2015 directed the Assessing Officer to review the details thoroughly. After verification of the details, the Assessing Officer passed the order u/s. 143(3) of the I.T. Act by disallowing the prior period expenses of Rs/45,14,322/-. The Assessing Officer passed the order u/s. 143(3) of the I.T. Act dated 16.06.2015 by determining the total income of the assessee at Rs.2,50,27,812/- as against income declared of Rs.1,86,65,990/- by making the following additions: Income declared as per return 1,86,65,990 Additions made Disallowance made in order u/s. 143(3) dated 24.12.2009 passed by DCIT, Bellary is being kept as it is a. Certain Direct Expenses 10,00,000 b. Diff. in value of Closing Stock 8,47,500 18,47,500 Prior Period Expenses 45,14,322 Assessed Income 2,50,27,812 Tax thereon 75,25,544 Balance payable after adjustment of prepaid taxes 24,38,120

Against this, the assessee is in appeal before us. The Ld. AR submitted that the sales booked twice in earlier year now reversed. Based on the order of M/s. Hamsa Minerals (India) Pvt. Ltd., Hospet, the Ld. AR submitted that the assessee allocated 98954.360 M. tons of Iron Ore in the yard exclusively for them and raised the invoices in the financial year 2004-05 and accounted for the same. Based on the movement of stock, it was submitted that the assessee obtained the permits only for 93204 MT and the assessee was able to send out the iron ore only 93204 MT by 31.03.2005 and the balance material to the extent of 5750.36 MT could not be dispatched and the stock was lying in the stock yard as at 31.03.2005. The Ld. AR submitted that out of the balance stock of 5750.36 MT, the assessee could dispatch only 4969.29 MT in the month of April 2005 supported by fresh permits for this quantity as the sales was booked earlier, but inadvertently, the assessee raised the invoices which were not required, as they had already raised the invoice for this quantity also during the month of February and March, 2005 itself. The Ld. AR submitted that the above mistake could not be pointed out during the financial year 2005-2006 and noticed only in the subsequent year of audit and the same was rectified. Hence, the Ld. AR submitted that the entry made for Rs.29,71,587/- was only a clerical error but not effected any sale. It was submitted that the amount was taxed in the financial year 2004-05 and 2005-06 and hence, is only a reversal for the sale booked second time in the financial year 2005-06. 4.1 The Ld. AR submitted that screening charges were short booked. The Ld. AR submitted that M/s. Shree Krishna Enterprises had given Bill No. 41 & 42 for Rs.31,19,911/- whereas the assessee booked the expenses based on the quality of service for Rs.19,36,575/-. However, the Ld. AR submitted that after a series of arguments with parties and materialization of the Rs.11,18,336 was booked as expense crystallized after settlement of dispute and the same was taken to prior period adjustment. 4.2 Regarding service tax on screening charges, the Ld. AR submitted that during the financial year 2005-06 the assessee had received the screening charges bill for the period 19-06-2005 to 01-07-2005 vide Bill No. 01/AMTL/NTN/2006-07 dated 06/07/2005 and on the bill, the service provider had not claimed the service tax. The Ld. AR submitted that in the financial year 2006- 07, the service provided had claimed the service tax through a debit note dated 28/12/2006 amounting to Rs.1,27,295/-. It was submitted that the assessee was not aware about liability during the year 2005-06 and it was crystallized during the year 2006-07 and it was accounted accordingly. 4.3 The Ld. AR submitted that the expenses were wrongly capitalized to building. The Ld. AR submitted that during the earlier year, the assessee had capitalized certain temporary erections for an amount of Rs.3,14,727/-. It was submitted that the assessee was of the view that this being temporary erection needs to be charged off and hence, the assessee charged during the current year. The Ld. AR submitted that the expenses have to be considered on the ground that vouchers for the same were received after 31st March of the previous financial year. For this, the Ld. AR relied on the judgment of the Delhi High Court in the case of CIT vs. Jagajit Industries Ltd. (2010) 194 taxman 158 wherein it was held that the assessee was following consistently the same accounting method and such expenses were allowed in past and in the various years and there was no material to show distortion of profits or books of accounts, therefore, the prior period expenses was allowable to the assessee. In the above facts and circumstances of the case, the Ld. AR prayed that the appeal of the assessee may be allowed.

The Ld. DR on the other hand submitted that the assessee was following mercantile system of accounting and each financial year is an independent assessment year. Expenditure of one assessment year cannot be allowed in another assessment year. In the present case, the expenditure claimed by the assessee relates to the earlier assessment year which cannot be allowed in the present assessment year.

We have heard the rival submissions and perused the material on record. The Ld. AR made a claim of expenses relating to the previous assessment year to be allowed in this assessment year without producing an iota of evidence to show that the impugned expenses is relating to the assessment year under consideration. It is to be noted that the audit report clearly states that the assessee was following mercantile system of accounting and therefore, only expenses relating to the assessment year under consideration are to be claimed and allowed. As per original return of income filed on 29/10/2007 in page 5 col. 40, the total income was shown at Rs.2,79,95,172/- whereas in the revised return of income filed on 17/02/2009, the assessee has shown the same income in page 5 col.

However, in page 8 of the original return of income, the assessee has shown Rs.2,79,54,745/- as business income and in the revised return of income, the net business income was shown as Rs.1,78,51,814/- which is not clear. Further, from the statement of income filed along with revised return, the business income was taken at Rs.1,86,65,990/-. However, in the computation statement, the gross income was taken at Rs.2,79,26,864/- even after claiming expenses of Rs.45,14,322/- and village development expenses of Rs.16,40,706/- which were not added again in the order passed u/s. 143(3) r.w.s. 263 of the I.T. Act. 6.1 The assessee has filed audit report u/s. 44AB of the I.T. Act along with the revised return wherein indirect expenses of Rs.45,14,322/- was claimed as expenses relating to prior period. It is seen that the assessee has not come up with any strong evidence in support of his arguments against the order u/s. 143(3) r.w.s. 263 of the I.T Act. It is also seen that there is no proper explanation as to why these expenses were to be allowed when mercantile system of accounting was being followed. Further, the genuineness of the claim along with the returns and statements of income itself was not proved in view of various contradictions and discrepancies mentioned above. In the facts and circumstances of the case, the contention of the assessee stands on a weak footing and is without merits. Thus, the addition made by the Assessing Officer of Rs.45,14,322/- is sustained. 6.2 As seen from the above, the claim of the assessee is not supported by any evidence to show that the said expenses are relating to the assessment year under consideration. Being so, we have no hesitation to confirm the addition made by the AO. Accordingly, this ground of appeal